Avid 2004 Annual Report Download - page 73

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indemnification provisions. As a result, the Company believes the estimated fair value of these indemnification provisions
is minimal.
As permitted under Delaware law, Avid has agreements whereby the Company indemnifies its officers and directors for
certain events or occurrences while the officer or director is or was serving at Avid’s request in such capacity. The term of
the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is unlimited; however, Avid has mitigated the
exposure through the purchase of directors and officers insurance, which is intended to limit the risk and, in most cases,
enable the Company to recover all or a portion of any future amounts paid. As a result of this insurance policy coverage and
Avid’s related payment experience to date, the Company believes the estimated fair value of these indemnification
agreements is minimal.
Avid provides warranty on hardware sold through its Video and Film Editing and Effects segment which generally mirrors
the manufacturers' warranties. The Company charges the related material, labor and freight expense to cost of revenues in
the period incurred. With respect to the Audio business, Avid provides warranty on externally sourced and internally
developed hardware and records an accrual for the related liability based on historical trends and actual material and labor
costs. The warranty period for all of the Company’s products is generally 90 days to one year but can extend up to five
years depending on the manufacturer's warranty.
The following table sets forth the activity in the product warranty accrual account for the year ended December 31, 2004 (in
thousands):
Accrual balance at December 31, 2002
$925
Accruals for product warranties
2,332
Cost of warranty claims
(1,902)
Accrual balance at December 31, 2003
1,355
Accruals for product warranties
3,605
Cost of warranty claims
(2,699)
Accrual balance at December 31, 2004
$2,261
J. CAPITAL STOCK
Preferred Stock
The Company has authorized up to one million shares of preferred stock, $0.01 par value per share for issuance. Each
series of preferred stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges, and liquidation preferences, as shall be determined by the Board of
Directors.
Shareholder Rights Plan
In February 1996, the Board of Directors approved a Shareholder Rights Plan. The rights were distributed in March 1996
as a dividend at the rate of one right for each share of common stock outstanding. No value was assigned to these rights.
The rights may be exercised to purchase shares of a new series of $0.01 par value, junior participating preferred stock or to
purchase a number of shares of the Company’s common stock which equals the exercise price of the right, $115, divided by
one-half of the then-current market price, upon occurrence of certain events, including the purchase of 20% or more of the
Company’s common stock by a person or group of affiliated or associated persons. The rights expire on February 28, 2006
and may be redeemed by the Company for $0.01 each at any time prior to the tenth day following a change in control and in
certain other circumstances.
Common Stock
In 2004 and 2000, the Company granted 20,000 and 260,000 shares, respectively, of restricted common stock to certain
employees under Company stock option and award plans. During 2000, the Company also completed a Stock Option
Exchange Program whereby employees could request that certain outstanding stock options be exchanged for shares of
restricted common stock according to specified exchange ratios. The Company granted 118,115 shares of restricted
common stock in exchange for stock options to purchase 431,836 shares of common stock with exercise prices ranging
from $9.44 to $45.25 per share under this program.